The Sane Case for Auditing the Fed. What is it about the Fed that inspires such solidarity among its critics? Ever since its creation during the Woodrow Wilson era, it’s been a favorite target of everyone from right-wing conspiracists who fear the Fed is simply another cog in an international Jewish banking conspiracy to left-wing populists who see it as both a cause and effect of globalized capital. Because it controls the money supply of the planet’s biggest economy and because it operates so opaquely, it’s an obvious place to project all sorts of anxieties about large, impersonal forces beyond our reach that sharply affect, if not actually control, virtually all aspects of our daily lives.

But one needn’t wade into the fever swamps of conspiracy to see the Fed as an inherently problematic institution. The central bank is explicitly tasked with the fundamentally incompatible duties of conducting stable monetary policy, promoting full employment, acting as a lender of last resort, and regulating the banks it works with. Good luck with all that. Also, while it’s technically independent, the federal government exerts massive political pressure on the Fed and appoints its chair and board of governors.

[…]

Reid hasn’t explained exactly why he won’t allow a vote on the bill, which has 30 co-sponsors. He’s keeping his reasons secret, which means that the Fed’s secrets are safe for at least a little while longer. And that trust in government will keep shrinking, just like the value of a dollar has over the life of the Federal Reserve. [The Daily Beast]

That drop in the value of the dollar is the main reason the Federal Reserve exists–it’s the organization responsible for looting the savings of people who use dollars though inflation. The government naturally wants to hide that. Consider the link at the end of the quoted section of the article: it shows an “inflation calculator” which, by default, shows that an item bought for $20 in 1913 would cost $480.51 in 2014. However, it uses the US government’s “Consumer Price Index,” a statistic specifically intended to hide the real rate of inflation.

Fortunately, it’s easy to find out how much $20 in 1913 is really worth today. In 1913, a US $20 coin had .9675 troy ounces of gold. That’s worth $1,147.07 today–which means that the US government, through the Federal Reserve, has stolen well over twice the amount that they’re willing to admit to through inflation. It’s hardly surprising they don’t want too much scrutiny.

A detailed look at what’s likely to happen to the economy in the near future. The site where this is posted takes various prominent government-published statistics that are widely accepted as reflecting the state of the economy, and determines what they would be based on the way the government used to calculate them in the past before changing them to hide the true economic situation from the chumps voters.

I’ve observed that some people have the idea that the US dollar is a safe store of value, and that if you buy $10 million worth of US treasuries, “you can assume that the money you put into the US is going to still be there when you need it.” I couldn’t reconcile this idea with my own memory of changing exchange rates, so I decided to do a bit of digging into historical exchange rates.

Suppose a hypothetical rich European has €10 million that he wants to keep safe as of July 31st, 2001. He puts it all into Dollars, which at the time gives him $8,752,050. Now, ten years later, he decides to convert his dollars back into Euros, and he gets €6,137,480.09.

If our hypothetical European had instead decided to store his money in Swiss Francs (given their reputation as the least worthless fiat currency), his €10 million would have gotten him 15,127,900 Swiss Francs ten years ago. Converting those Francs back into Euros today gets him €13,249,166.10.

Finally, let’s suppose I had €10 million on July 31st, 2001. I had to look elsewhere for the gold price in Euros ten years ago, but found that this would have gotten 32,559.71 ounces of gold. Today, that would convert back to €52,544,860.

I think it’s pretty obvious that if you’re looking for a safe place to store your wealth, the US Dollar is emphatically not it. In fact, attempting to safely store wealth in anything other than gold is a good indicator that someone either knows nothing at all about economics (which is actually the norm for Americans) or else is profoundly stupid.

Today the price of the ice-blended mocha I buy regularly at the Starbucks down the street went up to $4.55. It was only $3.70 a couple of years ago when I started buying them there regularly. If I’m not mistaken, that’s a yearly price increase more than double the inflation rate that the Feds admit to.

I came across this old post, written over six years ago on my old weblog:

Inflation continues to fall as buyers keep the pressure up on sellers. This also means that a 3-4% wage increase this year and a 10% increase in housing prices will have a major impact on real personal income and wealth. Another three years of this and we will have replicated the gains in real personal wealth over the last two decades (for most Americans — this is in contrast to the rapid stock market driven gains over the last 20 years for the nation’s wealthiest individuals). Nice. [John Robb’s Radio Weblog]

There are some problems with this theory. The most glaring is that he’s treating inflation as synonymous with some vague statistic about consumer prices. In fact, inflation is an increase in the supply of money–this may lead to an increase in prices, or it may not, depending on other factors. The US has been inflating its money supply for years without prices going up much, because we send the money overseas to pay for import goods. That can only work as long as overseas sellers are willing to accept the dollars (or have no choice).

The housing price increase is the result of another bubble. The Federal Reserve is still inflating the money supply, but now instead of the money going into smoke-and-mirror “dot com” stocks, it’s going into real estate. This is bad for anyone buying a house now, because when the bubble bursts, they’ll be stuck with a house worth less than what they paid for it, but their mortgage payments will reflect the inflated price.

To me, that’s even worse than losing money buying lottery tickets disguised as stocks. At least you can just accept your loss and move on, instead of being stuck either making excessive payments for 30 years on a house or else going through the hassle of selling it at a loss.

When I wrote that, it hadn’t occurred to me that those house buyers could legally walk away, but as it turns out they could.